<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
-------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------------- ----------------------
Commission File Number: 0-21330
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AVECOR CARDIOVASCULAR INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1695729
- - ------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13010 COUNTY ROAD 6, MINNEAPOLIS, MINNESOTA 55441
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(612) 559-9504
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X ] Yes [ ] No
As of May 9, 1996, there were 7,773,572 shares of the registrant's $.01 par
value Common Stock outstanding.
<PAGE>
INDEX
Part I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996
(Unaudited) and December 31, 1995 3
Consolidated Statements of Operations for the three months
ended March 31, 1996 and 1995 (Unaudited) 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6 - 9
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 10 - 14
Part II. OTHER INFORMATION
Item 1. Legal Proceedings. 15
Item 2. Changes in Securities. 15
Item 3. Defaults Upon Senior Securities. 15
Item 4. Submission of Matters to a Vote of Security Holders. 15
Item 5. Other Information. 15
Item 6. Exhibits and Reports on Form 8-K. 16
SIGNATURES 17
EXHIBIT INDEX 18
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVECOR CARDIOVASCULAR INC.
CONSOLIDATED BALANCE SHEETS
--------------------
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1996 1995
------------- ------------
Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $5,290,256 $9,178,211
Short-term investments 9,862,711 7,757,232
Accounts receivable, net 6,990,648 6,207,354
Inventories 7,490,218 5,933,487
Other current assets 1,034,608 1,067,760
------------- -------------
Total current assets 30,668,441 30,144,044
Equipment and improvements, net 3,147,533 3,065,506
Long-term investments 1,029,685
Other assets 317,564 309,676
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Total assets $35,163,223 $33,519,226
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,788,168 $2,224,601
Accrued expenses 2,236,078 1,853,216
------------- -------------
Total current liabilities 5,024,246 4,077,817
------------- -------------
Deferred grant 220,060 119,848
Commitments and contingency (note 8)
Stockholders' equity:
Serial preferred stock, par value $.01 per share;
authorized 2,000,000 shares; none issued
Common stock, par value $.01 per share;
authorized 20,000,000 shares; issued and
outstanding shares 7,772,672 and 7,663,833
shares at March 31, 1996 and
December 31, 1995, respectively 77,727 76,638
Additional paid-in capital 28,541,197 28,123,763
Retained earnings 1,387,851 1,175,294
Cumulative translation adjustments (87,858) (54,134)
------------- -------------
Total stockholders' equity 29,918,917 29,321,561
------------- -------------
Total liabilities and stockholders' equity $35,163,223 $33,519,226
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
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AVECOR CARDIOVASCULAR INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1996 1995
------------- -------------
Net sales $10,293,376 $7,596,835
Cost of sales 5,950,880 4,214,046
------------- -------------
Gross profit 4,342,496 3,382,789
Operating expenses:
Selling, general and
administrative 2,856,601 1,935,711
Litigation expense 504,825
Research and development 841,559 684,686
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Operating income 139,511 762,392
Interest income 209,046 53,328
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Income before
income taxes 348,557 815,720
Income tax provision 136,000 150,000
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Net income $212,557 $665,720
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Net income per share $0.03 $0.10
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Weighted average common
and common equivalent
shares outstanding 7,890,368 6,653,335
------------- -------------
------------- -------------
The accompanying notes are an integral part of the consolidated
financial statements.
4
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AVECOR CARDIOVASCULAR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net income $212,557 $665,720
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 344,836 244,837
Accretion of discount on investments (165,543) (34,017)
Changes in operating assets and liabilities:
Accounts receivable (820,713) (412,041)
Inventories (1,543,618) (403,334)
Other current assets 28,206 (56,985)
Accounts payable 581,173 474,949
Accrued expenses 387,114 95,193
------------ ------------
Net cash (used in) provided by operating activities (975,988) 574,322
------------ ------------
Cash flows from investing activities:
Purchase of equipment and improvements (432,056) (232,076)
Purchase of investments (5,950,789)
Proceeds upon sale or maturity of short-term investments 2,981,168
Increase in other assets (11,166) (36,214)
------------ ------------
Net cash used in investing activities (3,412,843) (268,290)
------------ ------------
Cash flows from financing activities:
Net proceeds from sales of common stock 57,460 36,248
Net proceeds from options exercised (163,928) 41,331
Net proceeds from warrants excercised 524,990
Grant proceeds 101,367
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Net cash provided by financing activities 519,889 77,579
------------ ------------
Effect of exchange rates on cash (19,013) 5,797
------------ ------------
Net (decrease) increase in cash and cash equivalents (3,887,955) 389,408
Cash and cash equivalents at beginning of period 9,178,211 2,035,281
------------ ------------
Cash and cash equivalents at end of period $5,290,256 $2,424,689
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
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AVECOR CARDIOVASCULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
---------------------------------
1. BASIS OF PRESENTATION
The consolidated financial statements included in this Form 10-Q have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed, or omitted,
pursuant to these rules and regulations. The year-end balance sheet was derived
from audited financial statements, but does not include all disclosures required
by generally accepted accounting principles. These consolidated financial
statements should be read in conjunction with the financial statements and
related notes included in the Company's 1995 Annual Report on Form 10-K as filed
with the Securities and Exchange Commission.
The consolidated financial statements presented herein as of March 31, 1996
and for the three month periods ended March 31, 1996 and 1995 reflect, in the
opinion of management, all adjustments (which include only normal, recurring
adjustments) necessary for a fair presentation of financial position and the
results of operations for the periods presented. The results of operations for
any interim period are not necessarily indicative of results for the full year.
2. ORGANIZATION
AVECOR Cardiovascular Inc. (the Company) was incorporated on December 13,
1990. The Company designs, develops, manufactures and markets specialty medical
devices used to treat cardiovascular disease.
The consolidated financial statements include the accounts of AVECOR
Cardiovascular Inc. and its wholly owned subsidiaries, AVECOR Cardiovascular
Ltd. and AVECOR Foreign Sales Corporation after elimination of all significant
intercompany transactions and accounts.
6
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3. INVENTORIES
Inventories consist of:
March 31, December 31,
1996 1995
------------ --------------
(Unaudited)
Raw materials $3,565,673 $2,506,496
Work-in-process 1,855,195 1,339,921
Finished goods 2,069,350 2,087,070
------------ ------------
$7,490,218 $5,933,487
------------ ------------
------------ ------------
4. INDUSTRY SEGMENT INFORMATION
The Company distributes its products through its direct sales force and
independent sales representatives. Additionally, the Company distributes its
products through domestic and foreign independent distributors who then market
the products directly to medical institutions. Sales to distributors accounting
for 10% or more of the Company's net sales for the three month periods ended
March 31, 1996 and 1995 were as follows:
1996 1995
----------- -----------
(Unaudited) (Unaudited)
Distributor #1 (1) $840,000
Distributor #2 (1) $796,000
(1) Less than 10% of net sales
5. NET INCOME PER SHARE
Net income per common and common equivalent share has been computed by
dividing net income by the weighted average number of common and common
equivalent shares outstanding. Common equivalent shares relate to stock options
and stock warrants when their effect is not antidilutive. The difference
between primary and fully diluted earnings per share was not significant in any
period presented.
7
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6. STOCKHOLDERS' EQUITY
The Company's 1991 Stock Incentive Plan (Plan) provides for granting to
eligible employees and certain other individuals nonqualified and incentive
options. The Company had reserved 750,000 shares of common stock for issuance
under the Plan. In January 1996, the Company's Board of Directors authorized,
and on May 7, 1996, the Company's shareholders approved, an additional 300,000
shares of common stock to be reserved for issuance under the Plan.
On May 7, 1996, the Company's shareholders also approved the reserve of
250,000 shares of the Company's common stock for issuance pursuant to the 1995
Non-Employee Director Plan (the "1995 Director Plan") established by the Board
of Directors on August 1, 1995. Options to purchase 42,000 and 10,500 shares of
common stock were granted during 1995 and on May 7, 1996, respectively. Also on
May 7, 1996, the 52,500 granted options were approved by the Company's
shareholders.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION (SFAS 123). The Company has elected to continue following the
guidance of Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, for measurement and recognition of stock-based transactions
with employees. The Company will adopt the disclosure provisions of SFAS 123 in
1996.
7. INCOME TAXES
In 1995, the Company utilized all net operating loss carryforwards. Due to
the utilization of these carryforwards, the 1995 effective rate varied from the
statutory rate. The Company anticipates it will be in a fully taxed position
throughout 1996.
8. CONTINGENCY
On September 6, 1995, COBE Laboratories, Inc. (COBE) filed a complaint in
Federal District Court in Denver, Colorado alleging that certain products in the
Affinity product line infringe three U.S. patents held by COBE. The complaint
was formally served on the Company on October 30, 1995. In its complaint, COBE
requested that the Court enter an order declaring that these patents have been
infringed by the Company's products, enjoining the Company from continuing this
alleged infringement, and awarding damages and expenses to COBE.
8
<PAGE>
During 1995, the Company reviewed the COBE patents after receiving notice
form COBE alleging infringement. As a result of this review, the Company
believes, based on an opinion from its patent counsel, that all of the claims
contained in the COBE patents which the Company believes might have a material
adverse effect on the Company are either invalid or not infringed by the
Company's products. The Company intends to vigorously defend this matter.
However, if COBE were to be successful in its infringement action against the
Company, the Company could become subject to an injunction preventing the
manufacture or sales in the United States of infringing products and to monetary
damages, or might be forced to seek a license from COBE in order to continue to
manufacture and sell any infringing product in the United States, which it might
not be able to obtain. The outcome of this legal action, including the
possibility of entering into a license with COBE, could have a material adverse
effect on the Company's business, financial condition and results of operations.
This matter is currently scheduled for trial in July 1996.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following is a discussion of the results of operations and financial
condition for the three month period ended March 31, 1996 compared with the
three month period ended March 31, 1995 and should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto.
OVERVIEW
The Company was incorporated on December 13, 1990. In June 1991, the
Company acquired the business and assets and assumed certain liabilities of the
surgical division of SCIMED Life Systems, Inc. (the "Predecessor Business"). On
December 1, 1992, the Company exchanged 160,000 shares of its Common Stock for
all of the outstanding shares of AVECOR Cardiovascular Ltd. (formerly Cardio Med
Ltd.) pursuant to which AVECOR Cardiovascular Ltd. became a wholly owned
subsidiary of the Company. AVECOR Cardiovascular Ltd. had formerly been a
distributor for the Company in the United Kingdom. In October 1995, the Company
opened a sales office in France which is organized as a subsidiary of AVECOR
Cardiovascular Ltd.
The assets acquired by the Company from the Predecessor Business included
the Company's line of solid silicone membrane oxygenators. In October 1991, the
Company introduced its MYOtherm cardioplegia delivery system. The Company began
marketing its Signature custom tubing packs in July 1993 upon the receipt of
marketing clearance from the U.S. Food and Drug Administration (the "FDA").
Also in July 1993, the Company began international marketing of the Affinity
oxygenator. In November 1993, the Company received marketing clearance from the
FDA to begin U.S. marketing of the Affinity oxygenator, and the Company released
the device to the U.S. market in February 1994. In July 1994, the Company
received marketing clearance from the FDA to market its Affinity blood
reservoirs. In October 1995, the Company received marketing clearance from the
FDA to market its Affinity arterial filter.
RESULTS OF OPERATIONS
NET SALES
Net sales increased 35% to $10,293,000 for the three months ended March 31,
1996 from $7,597,000 for the three months ended March 31, 1995. This increase
was principally the result of a higher volume of product shipments of the
Company's Affinity product line and Signature custom tubing packs.
Sales from the Affinity product line and Signature custom tubing packs
accounted for approximately 64% and 31% of the overall increase in net sales,
respectively. The Company began U.S. marketing of the Affinity oxygenator in
late February 1994 and the Affinity blood reservoirs in July 1994. U.S.
marketing of Signature custom tubing packs began in July 1993. Although the
Company continues to anticipate declining shipments of the silicone membrane
oxygenator line, net sales of the silicone line increased by $92,000 for the
three months ended March 31, 1996 when compared to the corresponding period in
1995 and by $299,000 when compared to the prior three months ended December 31,
1995. The silicone membrane oxygenator line's net
10
<PAGE>
sales increase for the three months ended March 31, 1996 was primarily due to a
large non-recurring shipment of approximately $290,000.
Sales to customers located outside of the United States were approximately
39% of net sales for the three month period ended March 31, 1996 compared to 41%
of net sales for the corresponding period in 1995.
COST OF SALES / GROSS PROFIT
Cost of sales as a percentage of net sales increased to 57.8% for the three
months ended March 31, 1996 from 55.5% for the three months ended March 31,
1995. The cost of sales percentage for the three months ended March 31, 1996
was unfavorably impacted by higher than expected sales of the Company's low-
margin Signature custom tubing pack line and silicone membrane oxygenator line.
The mix of products sold in any period will influence cost of sales and gross
profit for the period.
Also, volume-related manufacturing efficiencies have not yet been achieved
for the Company's recently introduced Affinity arterial filter. Higher
production volumes continued to improve Affinity oxygenator product costs,
although, these improvements were offset by a decrease in Affinity oxygenator
average selling prices. Although the gross profit margin may further benefit
from manufacturing efficiencies in the future, given the uncertainty associated
with the ultimate realization of any such efficiencies and the continuing price
pressures characteristic in the Company's markets, the Company cannot be certain
if its gross profit margin will be maintained, decline or improve.
SELLING, GENERAL AND ADMINISTRATIVE AND LITIGATION EXPENSE
Selling, general and administrative expenses increased 48% to $2,857,000
for the three months ended March 31, 1996 from $1,936,000 for the three months
ended March 31, 1995. This increase is attributed to costs associated with the
continuing development of a direct sales force in certain of the Company's
territories formerly served by distributors and independent sales
representatives, the addition of a Chief Operating Officer and an overall
increase in the Company's activity level. In connection with the Company's
development of a direct sales force, in October 1995, the Company opened a sales
office in France from which it will field a direct sales force to serve the
French market.
Management anticipates that selling, general and administrative expenses
for the year ended December 31, 1996 will be higher than the year ended December
31, 1995. Selling expenses for 1996, while expected to be higher than 1995
dollar levels, should continue to decline as a percentage of sales dollars.
These forward looking statements will be influenced by revenue increases
achieved by the Company, its ability to attract and retain qualified sales
personnel as the Company continues to develop its direct sales force, and the
timing and extent of promotional activities associated with new product
introductions, if any.
11
<PAGE>
The Company expensed professional fees of approximately $505,000 for the
three months ended March 31, 1996 in connection with the COBE Laboratories Inc.
(COBE) lawsuit alleging that certain Company products infringe three U.S.
patents held by COBE. A trial date of July 22, 1996 is currently established in
this lawsuit. Intellectual property litigation is complex and expensive. Legal
expenses related to this litigation are likely to continue to have a material
effect on the Company's 1996 earnings and cash position. This forward looking
information could be significantly affected by important factors which impact
the magnitude and timing of these expenses such as the actual trial date, the
length of the trial, the extent and timing of discovery proceedings and
dispositive motions prior to the trial, and other costs of preparation for
trial, such as the retention of expert witnesses. The outcome of this legal
action, including the possibility of entering into a license with COBE, could
have a material adverse effect on the Company's business and results of
operations in future periods. Management believes the Company's existing cash
and investments will be sufficient to satisfy its intent to vigorously defend
against the claims asserted by COBE. See Consolidated Financial Statements -
Note 8 "Contingency" and Part II, and Item 1 "Legal Proceedings" for further
discussion of this matter.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 23% to $842,000 for the three
months ended March 31, 1996 from $685,000 for the three months ended March 31,
1995. This increased research and development spending is a result of the
Company's ongoing efforts to pursue a number of potential product opportunities.
These opportunities include a new blood pump for which the Company expects to
submit a 510(k) application with the FDA in the third quarter of 1996, although
there can be no assurance that the Company will file a 510(k) for this device,
that the appropriate marketing clearance from the FDA will be received on a
timely basis, if at all, or, if received, that this device will become
commercially successful.
The Company anticipates that 1996 research and development expenses will
increase approximately 8% over 1995 dollar levels, as the Company moves to
expand and improve its proprietary line of disposable medical devices. This
forward looking projection is dependent on the extent and timing of new product
development and the impact of the regulatory process in obtaining marketing
clearance for new products. The need or desire to modify the Company's existing
products could also influence the level of research and development expenses.
There can be no assurance, however, that the Company's research and development
efforts will result in any commercially successful products.
INTEREST INCOME
Interest income increased to $209,000 for the three months ended March 31,
1996 from $53,000 for the three months ended March 31, 1995. Interest income
was earned primarily from the investment of the net proceeds from the Company's
June 1995 stock offering. At March 31, 1996, the majority of these proceeds
were invested with one investment portfolio manager who invested in U.S.
government securities, agency paper, money markets, commercial paper and
corporate obligations.
12
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INCOME TAX PROVISION
The income tax provision for the three months ended March 31, 1996
decreased to $136,000 from $150,000 for the corresponding period in 1995.
Although the provision of dollars for taxes decreased primarily due to a drop in
the income before taxes, the consolidated effective tax rate for the Company
increased to 39% for the three months ended March 31, 1996 from 18.4% for the
three months ended March 31, 1995. In 1995, the Company utilized all net
operating loss carryforwards. Due to the utilization of these carryforwards,
the 1995 effective rate varied from the statutory rate. The Company anticipates
it will be in a fully taxed position throughout 1996.
NET INCOME
Net income was $213,000 or $.03 per share for the three months ended March
31, 1996, compared to $666,000 or $.10 per share for the three months ended
March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures totaled $432,000 for the three months ended March 31,
1996, compared to $232,000 for the three months ended March 31, 1995. These
expenditures were primarily related to the addition of equipment, molds and
tooling necessary to further the production of the Affinity oxygenator, related
blood reservoirs and arterial filter. Additionally, in 1996, preliminary
capital spending began for the equipment, molds and tooling for the production
of a new blood pump. The Company's capital expenditures for 1996 are expected
to be approximately $1,500,000, not including any capital expenditures which may
be required in connection with new facilities, as discussed below. The Company
currently has no commitments for any such expenditures. The actual amount of
this forward looking projection of capital expenditures will depend on the
progress of the Company's product development efforts and the timing of the
receipt of FDA marketing clearance for any future products, including the new
blood pump.
Leases for the Company's U.S. manufacturing, research and development and
administrative facilities expire on December 31, 1996. The Company is currently
considering its facilities options, which include negotiating renewal of
existing leases or leasing or purchasing a different facility. Whether the
Company renews these leases or relocates will likely have an impact on 1996
capital expenditures and cash use. The amount of capital expenditures related
to new facilities, which would be in addition to the capital expenditure amounts
discussed above, and the ultimate cash usage is primarily dependent on the
method of financing the Company employs for these new facilities. The Company
anticipates that facilities costs will be significantly higher in 1997, but the
extent of the Company's investment or impact on future cost of operations is
currently not determinable.
13
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For the three months ended March 31, 1996, the Company used $976,000 in
operating activities compared to $574,000 of net cash generated from operating
activities for the same period in 1995. The net change of approximately
$1,550,000 is primarily the result of reduced net income and increasing levels
of accounts receivable and inventory resulting from increasing revenues. The
Company believes that its existing cash and investments as well as anticipated
cash generated from operations will be sufficient to satisfy the Company's cash
requirements for the foreseeable future.
In March 1996, net proceeds of approximately $525,000 were generated from
an exercise of the Company's stock warrants. At March 31, 1996, the majority of
these proceeds, along with the net proceeds from the Company's offering of
common stock in June 1995, remained in cash and cash equivalents and short-term
and long-term investments and will be used for general corporate purposes,
including research and development, working capital and possible acquisitions.
As discussed above under "Results of Operations", management believes the
Company's existing cash and investments will be sufficient to satisfy its intent
to vigorously defend against the claims asserted by COBE, although the outcome
of this legal action, including the possibility of entering into a license with
COBE, could have a material adverse effect on the Company's financial condition.
See Consolidated Financial Statements - Note 8 "Contingency" and Part II, and
Item 1, "Legal Proceedings" for further discussion of this matter.
FOREIGN CURRENCY TRANSACTIONS
Transactions by the Company's international subsidiaries are negotiated,
invoiced and paid in various foreign currencies, primarily pounds sterling, and
U.S. dollars. Accordingly, the Company is currently subject to risks associated
with fluctuations in exchange rates between the various currencies.
Substantially all of the Company's other international transactions are
denominated in U.S. dollars. Fluctuations in currency exchange rates in other
countries may therefore reduce the demand for the Company's products by
increasing the price of the Company's products in the currency of the countries
in which the products are sold.
NEW ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION (SFAS 123). The Company has elected to continue following the
guidance of Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, for measurement and recognition of stock-based transactions
with employees. The Company will adopt the disclosure provisions of SFAS 123 in
1996.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On September 6, 1995, COBE Laboratories, Inc. (COBE) filed a
complaint in Federal District Court in Denver, Colorado alleging
that certain products in the Affinity product line infringe three
U.S. patents held by COBE. The complaint was formally served on
the Company on October 30, 1995. In its complaint, COBE
requested that the Court enter an order declaring that these
patents have been infringed by the Company's products, enjoining
the Company from continuing this alleged infringement, and
awarding damages and expenses to COBE.
During 1995, the Company reviewed the COBE patents after
receiving notice from COBE alleging infringement. As a result of
this review, the Company believes, based on an opinion from its
patent counsel, that all of the claims contained in the COBE
patents which the Company believes might have a material adverse
effect on the Company are either invalid or not infringed by the
Company's products. The Company intends to vigorously defend
this matter. However, if COBE were to be successful in its
infringement action against the Company, the Company could become
subject to an injunction preventing the manufacture or sales in
the United States of infringing products and to monetary damages,
or might be forced to seek a license from COBE in order to
continue to manufacture and sell any infringing product in the
United States, which it might not be able to obtain. The outcome
of this legal action, including the possibility of entering into
a license with COBE, could have a material adverse effect on the
Company's business, financial condition and results of
operations. This matter is currently scheduled for trial in July
1996.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
15
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
The exhibits to this Quarterly Report on Form 10-Q are listed in
the Exhibit Index beginning on page 18 of this Report.
(b) Reports on Form 8-K:
On February 21, 1996, the Registrant filed two current reports on
Form 8-K, dated January 17, 1996 and February 15, 1996,
respectively, each reporting Item 5 - Other Information.
16
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVECOR CARDIOVASCULAR INC.
MAY 10, 1996 By /s/ Anthony Badolato
- - ------------------------------ ------------------------------------
Date Anthony Badolato
Chief Executive Officer
MAY 10, 1996 By /s/ Gregory J. Melsen
- - ------------------------------ ------------------------------------
Date Gregory J. Melsen
Vice President-Finance, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
17
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AVECOR CARDIOVASCULAR INC.
EXHIBIT INDEX TO QUARTERLY REPORT
ON FORM 10-Q
For the Quarter Ended March 31, 1996
<TABLE>
<CAPTION>
Item No. Description Method of Filing
- - -------- ----------- ----------------
<S> <C> <C>
3.1 Bylaws of the Company, as amended May 3,
1996............................................ Filed herewith electronically
4.1 Bylaws of the Company, as amended May 3,
1996............................................ See Exhibit 3.1
10.1 Consultant Agreement dated January 1, 1996
between the Company and Norman C.
McGibbon........................................ Incorporated by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 0-
21330)
11.1 Statement regarding computation of earnings per
share........................................... Filed herewith electronically.
27.1 Financial Data Schedule......................... Filed herewith electronically.
</TABLE>
18
<PAGE>
COMPOSITE COPY
REFLECTING AMENDMENTS
ADOPTED MAY 3, 1996
TO BYLAWS DATED
DECEMBER 31, 1990
BYLAWS
OF
AVECOR CARDIOVASCULAR, INC.
(the "Corporation")
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE The registered office of the Corporation
required by Chapter 302A of the Minnesota Statutes to be maintained in the State
of Minnesota is as designated in the Articles of Incorporation. The Board of
Directors of the Corporation may, from time to time, change the location of the
registered office. On or before the day that such change is to become
effective, a certificate of such change and of the new address of the new
registered office shall be filed with the Secretary of State of the State of
Minnesota.
SECTION 2. OTHER OFFICES. The Corporation may establish and maintain
such other offices, within or without the State of Minnesota, as are from time
to time authorized by the Board of Directors.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETING. All meetings of the shareholders shall
be held at the registered office of the Corporation in the State of Minnesota or
at such place within or without the state as may be fixed from time to time by
the Board of Directors, provided that a meeting called by or at the demand of a
shareholder shall be held in the county where the principal executive office of
the Corporation is located.
SECTION 2. DATE OF MEETING. A regular meeting of shareholders may be
held for the purpose of electing directors or for the transaction of any other
business as may come before the meeting. It shall be the duty of the Chief
Executive Officer or Treasurer and Chief Financial Officer, upon demand of any
shareholder holding three percent (3%) or more of the voting power of all shares
entitled to vote to call such meeting if a regular meeting of shareholders has
not been held during the immediately preceding fifteen (15) months. If said
officers fail to call and hold such meeting within ninety (90) days after
receipt of the demand, the shareholder making the demand shall have the right
and power to call such meeting.
SECTION 3. NOTICE OF REGULAR MEETINGS. Written notice of the time and
place of each regular shareholder meeting shall be mailed, postage prepaid, at
least ten (10) but not more than sixty (60) days before such meeting, to each
shareholder entitled to vote thereat at his address as the same appears upon the
books of the Corporation.
SECTION 4. SPECIAL MEETINGS. Special meetings of the shareholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, may be called by the Chief Executive Officer or
Treasurer and Chief Financial Officer and shall be called by the Chief Executive
Officer or Treasurer and Chief Financial Officer at the request in writing of
two or more members of the Board of Directors, or at the request in writing of
shareholders owning ten percent (10%) or more of the voting power of all shares
entitled to vote. Such request, which
<PAGE>
shall be by registered mail or delivered in person to the Chief Executive
Officer or Treasurer and Chief Financial Officer, shall state the purpose or
purposes of the proposed meeting.
SECTION 5. NOTICE OF SPECIAL MEETINGS. Written notice of the time,
place and purpose or purposes of a special meeting shall be mailed, postage
prepaid, at least five (5) but not more than sixty (60) days before such
meeting, to each shareholder entitled to vote at such meeting at his address as
the same appears upon the books of the Corporation.
SECTION 6. BUSINESS TO BE TRANSACTED. No business shall be transacted
at any special meeting of shareholders except that stated in the notice of the
meeting.
SECTION 7. WAIVER OF NOTICE. A shareholder may waive notice of a
meeting of shareholders. A waiver of notice by a shareholder entitled to notice
is effective whether given before, at, or after the meeting, and whether given
in writing, orally, or by attendance. Attendance by a shareholder at a meeting
is a waiver of notice of that meeting, except where the shareholder objects at
the beginning of the meeting to the transaction of business because the meeting
is not lawfully called or convened, or objects before a vote on an item of
business because the item may not lawfully be considered at that meeting and
does not participate in the consideration of the item at that meeting.
SECTION 8. QUORUM AND ADJOURNMENT. The holders of a majority of the
voting power of the shares entitled to vote at a meeting shall constitute a
quorum at all meetings of the shareholders for the transaction of business,
except as otherwise provided by statute or by the Articles of Incorporation.
If, however, such quorum shall not be present or represented at any meeting of
the shareholders, the holders of a majority of the voting power of the shares
entitled to vote thereat, and present in person or represented by proxy, shall
have the power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally noticed. The shareholders present at a duly called or
held meeting at which a quorum is present may continue to transact business
until adjournment, even though the withdrawal of a number of shareholders
originally present leaves less than the proportion or number otherwise required
for a quorum.
SECTION 9. VOTING RIGHTS. A shareholder may cast his vote in person or
by proxy. When a quorum is present at the time a meeting is convened, the vote
of the holders of a majority of the shares entitled to vote on any question
present in person or by proxy shall decide such question unless the question is
one upon which, by express provision of the applicable statute or the Articles
of Incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of such question.
SECTION 10. MANNER OF VOTING. Each shareholder shall at every meeting
of the shareholders be entitled to one vote in person or by proxy for each share
of the capital stock having voting power held by such shareholder, but no proxy
shall be valid after eleven (11) months from its date, unless the proxy
expressly provides for a longer period, and, except where the transfer books of
the Corporation have been closed or a date has been fixed as a record date for
the determination of its shareholders entitled to vote, no share of stock that
has been transferred on the books of the Corporation within twenty (20) days
next preceding any election of directors shall be voted on at such election for
directors.
2
<PAGE>
SECTION 11. RECORD DATE. The Board of Directors may fix a date, not
exceeding sixty (60) days preceding the date of any meeting of shareholders, as
a record date for the determination of the shareholders entitled to notice of
and to vote at such meeting, and in such case only shareholders of record on the
date so fixed, or their legal representatives, shall be entitled to notice of
and to vote at such meeting, notwithstanding any transfer of any shares on the
books of the Corporation after any record date so fixed. The Board of Directors
may close the books of the Corporation against transfers of shares during the
whole or any part of such period.
SECTION 12. ORGANIZATION OF MEETINGS. The Chief Executive Officer
shall preside at all meetings of the shareholders, and in his or her absence the
Treasurer and Chief Financial Officer shall act as Chairman. The Secretary
shall act as secretary of all meetings of the shareholders, or in his or her
absence any person appointed by the Chairman shall act as secretary.
SECTION 13. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at a shareholders' meeting may be taken without a meeting if
authorized by a writing or writings signed by all of the holders of shares who
would be entitled to vote on that action. Such action shall be effective at the
time the last signature is placed on such writing or writings, unless a
different effective time is provided in the written action. If any action so
taken requires a certificate to be filed in the office of the Secretary of
State, the officer signing such certificate shall state therein that the action
was effected in the manner aforesaid.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under its Board of Directors which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Articles of Incorporation or by these Bylaws required to be
exercised or done by the shareholders.
SECTION 2. NUMBER AND TERM OF OFFICE. The number of directors which
shall constitute the whole board shall be at least one (1), or such other number
as may be determined by the Board of Directors or by the shareholders at a
regular meeting. Except as otherwise permitted by statute, the directors shall
be elected at each regular meeting of the Corporation's shareholders (or at any
special meeting of the shareholders called for that purpose) by a majority of
the voting power of all shares entitled to vote and present in person or by
proxy, and each director shall be elected to serve until the next regular
meeting of the shareholders or until his or her successor shall have been duly
elected and qualified.
SECTION 3. RESIGNATION AND REMOVAL. Any director may resign at any
time by giving written notice to the Corporation. Such resignation shall take
effect at the date of the receipt of such notice, or at any later time specified
therein, and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. Any director may be
removed at any time, with or without cause, by the affirmative vote of the
holders of a majority of the voting shares entitled to elect such director.
SECTION 4. VACANCIES. If the office of any director becomes vacant by
reason of death, resignation, removal, disqualification, or otherwise, the
directors then in office, although less than a quorum, by a majority vote, may
choose a successor who shall hold office for the unexpired term in respect of
which such vacancy occurred. With respect to the initial election of a director
to fill
3
<PAGE>
a newly created directorship resulting from an increase in the number of
directors by action of the Board of Directors in the manner permitted by
statute, such vacancy shall be filled by the affirmative vote of a majority of
the directors serving at the time of the increase.
SECTION 5. MEETINGS OF DIRECTORS. The Board of Directors of the
Corporation may hold meetings, from time to time, either within or without the
State of Minnesota, at such place as a majority of the members of the Board of
Directors may from time to time appoint. If the Board of Directors fails to
select a place for the meeting, the meeting shall be held at the principal
executive office of the Corporation.
SECTION 6. CALLING MEETINGS. Meetings of the Board of Directors may be
called by (i) the Chief Executive Officer on two (2) days' notice or (ii) any
director on ten (10) days' notice, to each director, either personally, by
telephone or by mail or telegram. Every such notice shall state the date, time
and place of the meeting. Notice of a meeting called by a person other than the
Chief Executive Officer shall state the purpose of the meeting.
SECTION 7. PARTICIPATION BY CONFERENCE TELEPHONE. Directors of the
Corporation may participate in a meeting of the Board of Directors by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by that means shall constitute presence in person at the meeting.
SECTION 8. WAIVER OF NOTICE. A director may waive notice of a meeting
of the Board of Directors. A waiver of notice by a director entitled to notice
is effective whether given before, at, or after the meeting, and whether given
in writing, orally, or by attendance. Attendance by a director at a meeting is
a waiver of notice of that meeting, except where the director objects at the
beginning of the meeting to the transaction of business because the meeting was
not lawfully called or convened and does not participate thereafter in the
meeting.
SECTION 9. ABSENT DIRECTORS. A director may give advance written
consent or opposition to a proposal to be acted on at a meeting of the Board of
Directors by actual delivery prior to the meeting of such advance written
consent or opposition to the Chief Executive Officer or Treasurer and Chief
Financial Officer or a director who is present at the meeting. If the director
is not present at the meeting, advance written consent or opposition to a
proposal shall not constitute presence for purposes of determining the existence
of a quorum, but consent or opposition shall be counted as a vote in favor of or
against the proposal and shall be entered in the minutes or other record of
action at the meeting, if the proposal acted on at the meeting is substantially
the same or has substantially the same effect as the proposal to which the
director has consented or objected.
SECTION 10. QUORUM. At all meetings of the Board of Directors a
majority of the directors shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by applicable statute or by the Articles
of Incorporation. If a quorum shall not be present at any meeting of the Board
of Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present. If a quorum is present at the call of a meeting, the directors may
continue to transact business until adjournment notwithstanding the withdrawal
of enough directors to leave less than a quorum.
4
<PAGE>
SECTION 11. ORGANIZATION OF MEETINGS. The Chief Executive Officer shall
preside at all meetings of the Board of Directors, and in his or her absence the
Treasurer and Chief Financial Officer shall act as Chairman. The Secretary
shall act as secretary of all meetings of the Board of Directors, and in his or
her absence any person appointed by the Chairman shall act as secretary.
SECTION 12. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Articles of Incorporation or these Bylaws, any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a
meeting, if a written consent thereto is signed by all members of the Board of
Directors and such written consent is filed with the minutes of proceedings of
the Board of Directors. If the proposed action need not be approved by the
shareholders and the Articles of Incorporation so provide, action may be taken
by written consent signed by the number of directors that would be required to
take the same action at a meeting of the Board of Directors at which all
directors were present. Such action shall be effective on the date on which the
last signature is placed on such writing or writings, or such other effective
date as is set forth therein.
SECTION 13. COMPENSATION OF DIRECTORS. By resolution of the Board of
Directors, each director may be paid his or her expenses, if any, of attendance
at each meeting of the Board of Directors, and may be paid a stated amount as a
director or a fixed sum for attendance at each meeting of the Board of
Directors, or both. No such payment shall preclude a director from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall be chosen by
the Board of Directors and shall include a Chief Executive Officer, a President
and Chief Operating Officer, a Secretary, and a Treasurer and Chief Financial
Officer. The Board of Directors may also choose one or more Vice Presidents, and
one or more Assistant Secretaries and Assistant Treasurers. Any number of
offices or functions of those offices may be held or exercised by the same
person.
SECTION 2. ELECTION. The Board of Directors at its first meeting after
each regular meeting of shareholders shall choose a Chief Executive Officer, a
President and Chief Operating Officer, a Secretary and a Treasurer and Chief
Financial Officer.
SECTION 3. OTHER OFFICERS AND AGENTS. The Board of Directors may
appoint such other officers and agents as it shall deem necessary who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
SECTION 4. SALARIES. The salaries of all officers of the Corporation
shall be fixed by the Board of Directors.
SECTION 5. TERM OF OFFICE. The officers of the Corporation shall hold
office until their successors are chosen and qualify. Any officer elected or
appointed by the Board of Directors may be removed with or without cause at any
time by the affirmative vote of a majority of the Board of Directors. Any
officer may resign at any time by giving written notice to the Chief Executive
Officer or the Secretary of the Corporation. Any vacancy occurring in any
office of the Corporation shall be filled by the Board of Directors.
5
<PAGE>
SECTION 6. THE CHIEF EXECUTIVE OFFICER. POWERS AND DUTIES. The Chief
Executive Officer shall be the chief executive officer of the Corporation, shall
preside, when present, at all meetings of the Board of Directors and the
shareholders, shall have general active management of the business of the
Corporation, shall see that all orders and resolutions of the Board of
Directors are carried into effect, and shall perform such other duties
prescribed by the Board of Directors. He or she shall execute and deliver in
the name of the Corporation any deeds, mortgages, bonds, contracts or other
instruments pertaining to the business of the Corporation, except in cases in
which the authority to sign and deliver is required by law to be exercised by
another person or is expressly delegated by the Articles or the Bylaws or the
Board of Directors to some other officer or agent of the Corporation, and shall
maintain records of and, whenever necessary, certify all proceedings of the
Board of Directors and the shareholders.
SECTION 6A. THE PRESIDENT AND CHIEF OPERATING OFFICER. POWERS AND
DUTIES. The President and Chief Operating Officer shall be the chief operating
officer of the Corporation and shall, in the absence or disability of the Chief
Executive Officer, perform the duties and exercise the powers of the Chief
Executive Officer and shall perform such other duties and have such other powers
as the Board of Directors or the Chief Executive Officer may from time to time
prescribe.
SECTION 7. THE VICE PRESIDENT. POWERS AND DUTIES. The Vice President,
if any, or if there shall be more than one, the Vice Presidents in the order
determined by the Board of Directors, shall, in the absence or disability of the
President and Chief Operating Officer, perform the duties and exercise the
powers of the President and Chief Operating Officer and shall perform such other
duties and have such other powers as the Board of Directors or the President and
Chief Operating Officer may from time to time prescribe.
SECTION 8. THE SECRETARY. POWERS AND DUTIES. The Secretary shall
attend all meetings of the Board of Directors and all meetings of the
shareholders and record all the proceedings of the meetings of the Corporation
and of the Board of Directors in a book to be kept for that purpose. He or she
shall give, or cause to be given, notice of all meetings of the shareholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or Chief Executive Officer, under
whose supervision he or she shall be.
SECTION 9. ASSISTANT SECRETARY. POWERS AND DUTIES. The Assistant
Secretary or, if there be more than one, the Assistant Secretaries, in the order
determined by the Board of Directors, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Directors
or the Chief Executive Officer may from time to time prescribe.
SECTION 10. THE TREASURER AND CHIEF FINANCIAL OFFICER. POWERS AND
DUTIES. The Treasurer and Chief Financial Officer shall be the chief financial
officer of the Corporation. He or she shall keep accurate financial records for
the Corporation; deposit all money, drafts and checks in the name of and to the
credit of the Corporation in the banks and depositories designated by the Board
of Directors; endorse for deposit all notes, checks and drafts received by the
Board of Directors, making proper vouchers therefore; disburse corporate funds
and issue checks and drafts in the name of the Corporation, as ordered by the
Board of Directors; and perform other duties as prescribed by the Chief
Executive Officer or the Board of Directors.
6
<PAGE>
The Treasurer and Chief Financial Officer shall render to the Chief
Executive Officer and the Board of Directors, whenever requested, an account
of all his or her transactions and of the financial condition of the
Corporation.
SECTION 11. TREASURER AND CHIEF FINANCIAL OFFICER'S BOND. If required
by the Board of Directors, he or she shall give the Corporation a bond (which
shall be renewed every six (6) years) in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his or her office and for the restoration to the
Corporation, in case of his or her death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his or her possession or under his or her control belonging to
the Corporation.
SECTION 12. ASSISTANT TREASURER. POWERS AND DUTIES. The Assistant
Treasurer or, if there shall be more than one, the Assistant Treasurers, in the
order determined by the Board of Directors, shall, in the absence or disability
of the Treasurer and Chief Financial Officer, perform the duties and exercise
the powers of the Treasurer and Chief Financial Officer and shall perform such
other duties and have such other powers as the Board of Directors or the Chief
Executive Officer may from time to time prescribe.
ARTICLE V
CERTIFICATES OF STOCK
SECTION 1. CERTIFICATES OF STOCK. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by the Chief
Executive Officer or the President and the Secretary or an Assistant Secretary
of the Corporation, if there be one, certifying the number of shares owned by
him or her in the Corporation. The certificates of stock of each class shall be
numbered in the order of their issue.
SECTION 2. FACSIMILE SIGNATURES. Where a certificate is signed (1) by
a transfer agent or an assistant transfer agent, or (2) by a transfer clerk
acting on behalf of the Corporation and a registrar, the signature of any such
Chief Executive Officer, President, Secretary or Assistant Secretary may be
facsimile. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on any such certificate or certificates
shall cease to be such officer or officers of the Corporation before such
certificate or certificates have been delivered by the Corporation, such
certificate or certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the Corporation.
SECTION 3. LOST OR DESTROYED CERTIFICATES. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his or her legal representative, to advertise the same in such
manner as it shall require and/or to give the Corporation a bond in such sum as
it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost or
destroyed.
7
<PAGE>
SECTION 4. TRANSFERS OF STOCK. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 5. REGISTERED SHAREHOLDERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall be
entitled to hold liable for calls and assessments a person so registered on its
books as the owner of shares, and shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by applicable statute.
ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify to the fullest extent permissible under the
provisions of Chapter 302A of the Minnesota Statutes, as amended, (as now or
hereafter in effect) any person made or threatened to be made a party to or
witness in any threatened, pending, or completed civil, criminal,
administrative, arbitration, or investigative proceeding, including a proceeding
by or in the right of the Corporation by reason of the fact that he is or was a
director or officer of the Corporation, or by reason of the fact that such
director or officer, while a director or officer of the Corporation, is or was
serving at the request of the Corporation, or whose duties in that position
involved service as a director, officer, partner, trustee or agent of another
organization or employee benefit plan, against all judgments, penalties, fines,
including, without limitation, excise taxes assessed against the person with
respect to an employee benefit plan, settlements, and reasonable expenses,
including attorneys' fees and disbursements. Nothing contained herein shall
affect any rights to indemnification to which employees or agents of the
Corporation other than directors and officers may be entitled under the
provisions of Chapter 302A of the Minnesota Statutes, as amended. Any repeal or
modification of this Article VI shall be prospective only, and shall not
adversely affect any right to indemnification or protection of a director or
officer of the Corporation existing at the time of such repeal or modification.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the provisions of the applicable
statute and the Articles of Incorporation, dividends upon the capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, in property, or in shares of the
capital stock.
SECTION 2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purposes as the directors shall think conducive to the interest
of the Corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
8
<PAGE>
SECTION 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 5. SEAL. The Corporation shall not have a corporate seal.
ARTICLE VIII
AMENDMENTS
SECTION 1. AMENDMENTS. The power to make, alter, amend or rescind
these Bylaws is vested in the Board of Directors, subject to the power of the
shareholders to adopt, amend or repeal these Bylaws, as permitted by applicable
statute.
May 3, 1996
9
<PAGE>
EXHIBIT 11.1 -- STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
Quarter Quarter
Ended Ended
March 31, March 31,
1996 1995
-------- ---------
(In thousands, except per share data)
NET INCOME $213 $666
----- -----
----- -----
PER SHARE DATA:
Net income per common equivalent share,
primary $0.03 $0.10
----- -----
----- -----
Net income per common equivalent share,
fully diluted $0.03 $0.10
----- -----
----- -----
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES:
Primary:
Weighted average number of common
shares outstanding 7,699 6,420
Warrants 3 35
Options 189 199
----- -----
7,890 6,653
----- -----
----- -----
Fully diluted:
Weighted average number of common
shares outstanding 7,699 6,420
Common equivalent shares:
Warrants 3 40
Options 193 241
----- -----
7,895 6,701
----- -----
----- -----
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,290,256
<SECURITIES> 10,892,396
<RECEIVABLES> 7,093,098
<ALLOWANCES> 102,450
<INVENTORY> 7,490,218
<CURRENT-ASSETS> 30,668,441
<PP&E> 6,585,038
<DEPRECIATION> 3,437,505
<TOTAL-ASSETS> 35,163,223
<CURRENT-LIABILITIES> 5,024,246
<BONDS> 220,060
77,727
0
<COMMON> 0
<OTHER-SE> 29,841,190
<TOTAL-LIABILITY-AND-EQUITY> 35,163,223
<SALES> 10,293,376
<TOTAL-REVENUES> 10,293,376
<CGS> 5,950,880
<TOTAL-COSTS> 10,153,865
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (209,046)
<INCOME-PRETAX> 348,557
<INCOME-TAX> 136,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 212,557
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
